Agenda item

The purpose of this report is to update Members on the progress of the project to date and seek Member agreement for a revised budget to reflect current cost pressures.

The Committee received a joint report from the Director of Growth and the Chartered Development Surveyor/Project Development Manager. The Chartered Development Surveyor/Project Development Manager had joined the meeting virtually to assist with responding to questions asked by the Committee.

The report provided a further update on the progress of the regeneration of the Alexandra Theatre and sought the Committee’s agreement for a revised budget to reflect cost pressures.

The Director of Growth provided a detailed presentation and explained the recommendations to the Committee which if approved would be recommended to Full Council on 6 November 2024 for final approval.

In terms of delivering the project, the Director of Growth was pleased to confirm that the contractors were due to commence on site earlier in the day to install the security fencing and start their on-site preparatory work.  This would be followed by the removal of asbestos ahead of the demolition of those parts of the building being removed in early December (subject to the outcome of the recommendations being proposed).

The second part of the report related to the financial challenges associated with delivering the project. The Committee was reminded that the economy had, over the last few years, weathered several challenges including the ongoing war in the Ukraine and the associated energy crisis.  The annex to the report set out the impacts on the cost of delivering capital projects, especially the substantial rises in the cost of construction materials over the last 3 years. In addition to this, contractors were demonstrating an increased unwillingness to absorb high levels of risk.  There had been several high profile contractors running into financial difficulty resulting in the sums set aside for contingency purposes having increased.

The Council’s new contractors, Neilcott Construction, had been carefully pricing the cost of the various works required and this work has been subject to constructive challenge by the Council’s in house team, Max Whitehand, Project Manager and Mace, specialist advisors.  This very detailed work had revealed that the cost of delivering the proposed scheme was not immune from both the cost inflation over the last few years but also the increased aversion to high levels of risk.  This had placed more pressure onto budgets and clients (the Council) to absorb the increased level of risk.

This demonstrated that the budget in place was no longer sufficient to deliver the project as originally agreed and so the Council had a few options to consider. The Director of Growth explained each of the options available. The first was to agree to increase the budget for the project which was estimated to be an increase by approximately £3m. This would be made up of an additional £1m, for core costs that were known, plus and additional £2m for contingency purposes given that the existing contingency funds had been absorbed into the known core project costs.  It was hoped that the contingency funds would not have to used, however, the Director of Growth could not provide any firm guarantee. To help mitigate this issue, it was proposed that the Council retained the contingency fund rather than it being included in the main contract as was normal practice.  This meant that the contractor would have to request the drawing down from these funds if necessary.

If the Committee decided that it did not wish to increase the budget, then the alternative options and a financial appraisal on cost had been clearly outlined within the report. This included modifying the scheme to fit the existing budget, meaning a substantial reworking of the scheme would be required which would not necessarily result in the delivery of the previously agreed outcomes. At the same time, this would delay the project substantially. Alternatively, the Council could decide to abandon the project subjecting it to severe reputational risk; abortive costs and the probability that Levelling Up grants already received would have to be repaid to Central Government.

The Director of Growth stated that it was also worth the Committee understanding that any decision not to proceed with this scheme would leave the theatre in a position where to make it operational would require some funds to be spent.

In taking all the facts presented, the recommendation of officers was for the Committee to recommend to Full Council that the budget be increased by the recommended amount of £3m.

Before inviting questions and debate from the Committee, Councillor Stanley proposed the recommendations which were seconded by Councillor Nash.

In discussing the report, a number of concerns were raised by Members. At the commencement of this project, its initial delivery had presented a challenging  scenario. Back in autumn 2022, the then Leader of the Council, Councillor Gunner, had  attended numerous meetings with the then Project Officer, where the first request to increase the budget had been made. That had been a challenging and difficult decision for the Council to make and at an early stage of the project but had been pursued based on a very clear promise that no further additional funding would be required. Now Councillors were being told that a further £3m was required which did not paint the council in a positive light. There were reputational risks in not proceeding but that same risk was present if the Committee opted to agree the recommendations proposed. Another concern was that that Councillors were being approached with this request whilst having to be mindful of the need to make savings across the Council. If the Committee chose to support the Officer recommendations, it would be subjecting the Council to financing these costs at a sum of £175k per year over a 50-year period.

This was a very difficult decision for Members to make. Whilst they wanted the project to proceed, they had to determine if proceeding was worth subjecting the Council to long-term borrowing. Comments were made that in terms of the near to £15.8m budget in place, the Council should be able to deliver this project and if this was not the case, then there would be further discussions that would need to be had urgently.  The point was made that £3m was a lot of money that could be spent on other projects, such as the Angmering Sports Hub or projects elsewhere in the district such as Yapton and other developments elsewhere. There was not enough confidence that there would not be more financial requests made moving forward.

Other Councillors spoke in strong support of the recommendations, highlighting that the inflationary pressures and other factors explained had impacted the construction market in the last 2 years and had drastically increased costs industry wide in delivering projects. This industry uncertainty was a national issue, and the Council was now experiencing the consequence of those pressures. The people of Bognor Regis and the wider community had been promised an upgraded theatre with new facilities and would feel very aggrieved if this could not be delivered. Retaining the suggested forecast contingency funds within the Council’s control would provide an added layer of budgetary control. The project still represented value for money and the recommendations should be supported. Members were reminded of the potential benefits that the project would bring not to just Bognor Regis but the wider local economy. The theatre and the new facilities would be a creative hub that could be used for education and training and would be a catalyst for district cultural vision attracting national attention and thereby improving the culture and digital offering for the district.

Moving forward with the debate, concerns were expressed over the value engineering process mentioned which would bring the project back on track financially and did this mean an amended project? The Director of Growth explained the difference between value engineering and redesigning the scheme. Value engineering aimed to deliver the same outputs and outcomes by adjusting and utilising different materials as opposed to making fundamental changes to the core scheme. An alternative option could be to redesign; however, this would not be a quick process and would require the need to halt the project at this stage to include the demolition works scheduled to commence on 4 December 2024. The Chartered Development Surveyor/Project Development Manager responded to the concerns raised over applying value engineering by explaining in detail the position; what this meant and that work to date had already carved out a massive amount of cost, whilst preserving the aesthetic look of the building. He hoped that this provided a level of reassurance that this approach would not impact what the project originally planned to achieve. 

Other questions asked were whether the theatre operator had been consulted and updated on the value engineering works; was the Council continuing to support them financially; and were they pursuing their own fundraising programme. The Director of Growth confirmed that the council was continuing with regular engagement. In terms of responding to the other questions raised, he confirmed that he would happily provide a response outside of the meeting. In terms of the delays experienced, Members were keen to know if the Council had sought agreement from the government to any revised programme.

The Committee then confirmed that it was happy for two non-committee members to address the meeting.  Councillor McDougall confirmed that he had two very technical questions that he would be happy to submit to the Director of Growth outside of the meeting. Councillor Goodheart spoke in support for and the need for progress to be made on that site urgently.

In summarising the debate, the Chair acknowledged that this was a very difficult situation and decision for Councillors to make and he reminded them of the key milestones that had been reached and the national circumstances that had developed leading to the situation the Council now found itself in. He confirmed that he did not want to see the project watered down and that he had felt reassured that solid plans were in place to control the costs through value engineering whilst still delivering the key themes of the project. This was a project that needed to be delivered, as promised, to the people of Bognor Regis. The Chair confirmed that discussions with the theatre company would continue and that to not support the increase in budget was not a favourable option in view of what had been spent to date and the unconfirmed amount of grant funding that would have to be repaid.  He therefore encouraged the Committee to support the recommendations.

Before turning to the voting on the recommendations, the Chair was advised by the Committee Services Manager that for the Committee to be able to continue past 9.00 pm, it was necessary for it to consider if it wished to extend the meeting for a further 30 minutes in line with Committee Procedure Rule 8 [Duration of Meetings]. This was proposed by Councillor Lury and seconded by Councillor Nash and on being put to the vote was approved by the Committee.

With the support of the Committee, the Chair confirmed that the voting on the recommendations would be split.  Recommendation 2.1 would take place first with the voting on Recommendations 2.2 and 2.3 being combined.  A recorded vote on Recommendations 2.2 and 2.3 was requested.

The Committee        

            RESOLVED – That

2.1 The revised programme milestone be noted, and that agreement be given that further updates will take the form of briefing notes circulated to all Members and future Committee reports will be limited to where a formal decision is required from the Committee; and

2.2 The Committee approves the addition of £3million to the Regeneration of the Alexandra Theatre project budget and includes this in the capital programme.

Those voting for this recommendation were Councillors Birch, Huntley, Lury, Nash and Stanley (5). Councillor Gunner voted against the recommendation (1). Councillors Andy Cooper, Alison Cooper, and Greenway abstained from voting (3).

The Committee also

            RECOMMENDS TO FULL COUNCIL – That

(1)  An additional budget provision of £3 million be included in the capital programme for the Regeneration of the Alexandra Theatre project; and

(2)  The Council retains control of the contingency sums for the project and thus retains responsibility for funding any matters that fall outside of the agreed construction contract.

Those voting for these recommendations were Councillors Birch, Huntley, Lury, Nash and Stanley (5). Councillor Gunner voted against the recommendation (1). Councillors Andy Cooper, Alison Cooper, and Greenway abstained from voting (3).